National sovereignty and self-dependence is the foremost requirement of our country. We as a nation have to take such steps which may ensure our sustainable development based on the indigenous resources. If our national/provincial assembly members and business community really wish to bail out our economy from international donors, which have their own malign agenda, it is time to sit together and do the remarkable assignment of preparing this budget without scoring political mileage and keeping themselves away from self-interest.
Good planning and governance have to be enhanced in every field of life and proper legislation and its implementation is required for better results in coming times. In this scenario, role of the judiciary is of prime importance. Presently, bad governance has eroded and shattered the administrative, economic, financial and social sectors of our country. With the help of proper planning, good governance and implementation of prevailing laws, our country can overcome the taxation gap and can get rid of foreign aids.
Tax-to-GDP-ratio needs to be increased from 10% to 17% within next five years. For sustainable economic growth, it needs to increase annually and should reach around 8% at the end of five-year plan. We have to take the following measures, if our nation wants to achieve these objectives.
GUIDING PRINCIPLES FOR BUDGET 2011
1 Increase in direct taxation: Presently ratio of direct taxation is less than the indirect taxes. This is fuelling to inflation and adding to the miseries of poor people. It is suggested to take following measures for increase in direct taxation.
i) Gradually convert the final tax regime to minimum tax and ensure submission of normal tax returns. Further in this budget, no other sector be brought under final tax regime.
ii) Conduct audit of cases not showing reasonable increase in taxable income than the previous year declared/assessed income.
iii) During conduct of audit, accounts record must be the source of verification. Person having a turnover of more than five million must maintain proper books of account duly reconciled with their bank accounts. Cases, where the books of account does not support the returns, it should be rejected and decision be made on best judgement basis. That case must also be decided at appellant forum on basis of accounts. Soft copy of books of account requires to be submitted to assessing authority, that directorate intelligence and audit may check and verify the accuracy and conduct of audit by assessing authorities.
iv) Lessen gradually the presumptive tax regime.
v) Increase element of automation from filing to assessment with lessening the undue interference of tax authorities.
vi) Through broadening of tax base and lowering the tax burden on existing corporate sector.
vii) Documentation of economy by doing away the exemption and zero-rating of sales tax.
viii) Imposition of tax on wealth.
ix) Imposition of tax on farmers having taxable income.
x) Lower gradually the rates of sales tax.
2. INCREASE IN TAX TO GDP RATIO
Our tax-to-GDP-ratio is around 9% that is terribly lower than our neighbouring countries (17%) and rest of the world (15% to 45%). We can enhance this ratio by taking following measures.
i) Broadening of tax base. Bring in tax net the new sectors with other following measures:
--- Tax on sale/purchase of properties/other assets and other related activities.
--- Probe for tax on persons having more than on house/plots in urban areas.
--- Probe for tax on persons having annual utility bills (electric, phone and gas) more than Rs 75,000.
--- Doing away with the Sales Tax exemption and zero-rating.
--- Increasing emphasis on documentation and no compromise in its compliance and implementation.
--- Imposition of wealth tax and tax on agriculture income.
--- Creating/promoting good governance in FBR machinery through devising SOP, automation, surveillance and audit.
--- There is lot of black money on account of tax evasion and other corruption, entailing to enhance inflation in the country .Tax amnesty scheme at 5% will help bring the amount into productive economic circle. Further steps are needed to bring the money deposited in Swiss accounts of Pakistani national. A separate amnesty can be granted to them and meanwhile necessary legislation and other measures be taken to minimise such flight of capital.
3. DOCUMENTATION OF ECONOMY It is the foremost requirement of our economy. It will enable us to have reasonable information/data that will help us in the formulation of different laws and policies and will increase compliance of business laws. It is suggested to take the following measures:
--- Doing away with the exemptions and zero rating of sales tax.
--- Charge marginal rates of tax ie 1% on necessary medicines and food items.
--- Ensure tax audit of all taxpayers showing increase in taxable income less than 30%.
--- Assessing officers should not have any right to reject the book of account with out having any solid reason/proof and having listened to the assessees.
--- Proper books of account should be mandatory for the conduct of tax audit.
--- Every business concern having a turnover of more than 100 million to 750 million must have the full-time/part-time services of a qualified commerce graduate/master degree for bookkeeping /prevailing law compliance and management of accounts. Business concerns having a turnover of more than 750 million must hire the full-time/part-time services of Chartered Accountants and Cost and Management Accountants.
--- For having an analysis of actual cost and curbing the ongoing corruption, it is suggested that pre-audit/post-audit of the government projects costing more than 300 million should be conducted by the firm of Chartered Accountants and Cost and Management Accountants.
--- It is a common trend that when the price of any input increases, the output price increases more than the input cost which fuels the inflation and increases the suffering many more. Cost analysis of industry/commercial activities and other services, which directly passes the inflationary impact on the masses, needs to be conducted on permanent basis, to retard the undue/unjust upward inflationary move affecting the poor people. That analysis be conducted by independent firms of Cost and Management Accountants and Chartered Accountants.
4. RATES OF TAXES Prevailing tax rates need to be reduced in five-year plan in context of aforementioned measures to increase revenue collection and economic growth. These are suggested as under:
It will boost economic activities in the country along with reduction in tax evasion practices. It will enable investors and industrialists to make correct forward planning of its business along with attraction of foreign investment and job opportunities for the more people.
5. INDUSTRIAL ZONES For boosting economic activities and provision of employment in under developed areas of country. It is suggested to create income tax free (income tax exemption for seven years) industrial zones in under developed areas of country.
6. CORPORATE FARMING Corporate farming (agro crops, horticulture, dairy and poultry, forestry and fisheries) should be given the status of industrial/commercial activity with exemption of income tax for five years. It will enhance agriculture growth and introduce latest technology and research in this field. People of rural areas will get better job opportunities at their doorsteps and migration from villages to cities will retard.
7. PRIVATIZATION Government-owned corporations and commercial entities require transparency in their working with an approach to boost the economic activities and save the government from on going losses. It is suggested to tender it internationally and it should be facilitated and ensured that local investor may collaborate with foreign investors.
8 HONOUR TO TAXPAYERS There must a system of honourable recognition for the taxpayers who are contributing/depositing the taxes due on them honestly and fully complying with the prevailing laws. This may encourage the other people for compliance of taxation laws. It is suggested:
--- To grant civil awards to every category of taxpayers annually.
--- Quick response, immediate attention required from government functionaries on complaint from an active taxpayer or business association and chamber of commerce and industries.
--- Business association/bodies be taken into confidence and engaged in consultation process before issuing any directive effecting their business.
9. REDUCTION IN INTEREST RATES Our cost of production and cost of doing business are very high on account of deficiency as well as higher cost of fuel and electricity. In this scenario, cost of finance is also fuelling it and this phenomenon along with others, turning most of the business activities into un-economic zone. It is suggested to bring down the interest rates gradually to single digit.
10. Keeping in view the present tax gap, prospective broadening of tax base, documentation of economy by doing away with sales tax exemption, imposition of income tax on agriculture, wealth tax on wealthy persons, measures for increase in industrial, agriculture, natural resources growth along with strict governance and monitoring and implementation of laws. It is forecasted that our country has the potential to touch the revenue target in coming years as under:
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(Rs in billion)
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2011-12 2012-13 2013-14 2014-15 2015-16
2500 3100 3700 4400 5000
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1st year 2nd year 3rd year 4th year 5th year
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Income tax
Corporate sector 35% 34% 33% 32% 30%
Sales tax 17% 15% 13% 10% 8%
Income tax
On individual/AOP 25% 24% 22% 21% 20%
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(To be continued)